The Challenge Ahead As AfCFTA Takes Effect

“Africa and AfCFTA are today self-reinforcing. The AfCFTA, if done well, will be the platform that turbo-charges investment, innovation and ultimately growth and prosperity for Africa. The private and public sectors must work together to deliver on its promise,” Vera Songwe ECA Executive Secretary said on New Year’s Day.

With this statement, which has been accompanied by so many others to mark the beginning of African Continental Free Trade Area, which takes effect on January 1, 2021, the success of AfCFTA undoubtedly depends on what African leaders do and what they do not do.

The idea, which was born in 2012 from the desire to create a bloc that will spur economic growth through intra-African trade in the continent, went through hurdles to reach this point. It was until 2018 that the AfCTFA agreement was signed due to the hesitation of African Union (AU) member states.

Nigeria, Africa’s largest economy was late to the party, signing the agreement in July 2019 when most African countries had penned their approval. The development signaled that there could be further hurdles in the future, as Africa pushes to create the biggest bloc in history since 1995 when WTO was created. So far, only 31 countries out of the 54 AU member states who signed the agreement since it went into force on May 30, 2019 have ratified their instruments.

The main objectives of AfCFTA are: To create a single continental market for goods and services, with free movement of business, persons and investments; expand intra-Africa trade across the regional economic communities and the continent in general; and enhance competitiveness and support economic transformation.

It has been the biggest move made by African leaders to boost the continent’s economy through the promotion of intra-African trade. But it has come with a lot of challenges ranging from Rule of Origin (RoO) to AU member states’ attitude toward integration.

In august 2019, a month after it signed the AfCFTA agreement, Nigeria closed its borders to other West African states, citing smuggling of weapons and alarming inflow of contraband rice, which are stymieing the country’s fight against terrorism and its goal to attain food sufficiency through farming. The decision rang a bell of worry as one of the instruments for the development of the new bloc lies on the Regional Economic Communities (RECs) such as ECOWAS, SADC, EAC etc., and about eight of them have been recognized by AfCFTA.

In 2019, the respective share of Africa’s intra-REC trade emphasized the essence of the regional communities in AfCFTA. Intra-SACU share in intra-Africa export by all African countries was 21%, while the respective shares of intra-ECOWAS, intra-EAC and intra-CEMAC were 17%, 3% and 0.4%, with South Africa and Nigeria leading in their regions. Intra-REC exports as a percentage of total African exports by REC show that most countries trade more with their REC counterparts apart from AMU and ECCAS members.

As Nigeria grudgingly ratified AfCFTA in December, the border closure which had thrown ECOWAS into trade dispute was resolved. The borders were once again opened, allowing the commencement of intra-REC export. But it has set a trajectory that many are concerned would undermine the future prospects of the bloc.

Ghana, another member of the ECOWAS community was also caught in a conduct unbecoming of the AfCFTA’s objectives. The Ghanaian government had asked Nigerian traders operating in Ghana to close their shops or pay $1 million for trading license fee, an unaffordable demand for the Nigerian traders which is believed to be a “go back to your country” message. The persecution has prompted many traders of Nigerian origin in Ghana to quit.

In South Africa, xenophobic attacks on foreigners of African origin blew out of proportion once again in 2019. The locals attacked businesses and even killed owners in a protest against foreign nationals operating successful businesses in their country. That included members of SADC and SACU, who made up the South African REC.

Against this backdrop, the success of AfCFTA depends much on activities taking place across the borders, and will require more efforts from member states to address.

The AfCFTA protocol does not stipulate the penalty for breaching the single transport market rules, apart from the reciprocity that may come from the offended member state. And it goes beyond border and xenophobic issues to the RoO.

Rule of Origin is a clearance enabling goods to circulate duty-free within a free trade area as long as the goods are ascertained to originate from the trade area. The rule define criteria that must be met for a product to be considered as originating from the exporting country within the bloc, and thus qualifies for preferential treatment which means no import duties and zero import tariffs.

“The AfCFTA is a landmark achievement in the continent’s history of regional integration and is expected to generate significant gains. But it is the rules of origin that will determine whether preferential trade liberalization under AfCFTA can be a game changer for Africa’s industrialization,” said UNCTAD Secretary-General Mukhisa Kituyi.

UNCTAD said the gains of AfCFTA could be easily undermined if rules of origin are not appropriately designed and enforced to support preferential trade liberalization. However, it has come with a challenge that is rooted in underdevelopment among other factors.

In countries like Nigeria, where infrastructure deficit is responsible for the higher cost of goods and services compared to other members of the ECOWAS bloc, consumers would likely prefer goods from neighboring countries. This means its REC members would have a larger share of the intra-REC export for common goods. Manufacturers are worried that ECOWAS members could rebrand goods from outside the REC or even outside the continent as their own and sell at lower costs in their countries due to cost differences. If that happens, the preferential treatment may be withdrawn, undermining the essence of AfCFTA.